The CGs are indeed generated with AI. We're not hiding this. Some of our games use Daz 3D renders (for example https://cutepen.itch.io/horny-witch-crusade), while others use Stable Diffusion (various models, NovelAI is one of them, depends on the game), some games are hand-painted in Clip Studio Paint (e.g. https://cutepen.itch.io/poorly-drawn-but-horny), some are renders in Blender (https://cutepen.itch.io/brain-exam-with-benefits). It's not that difficult to tell which is which.
There certainly is a big amount of backlash against AI generated art currently for various reasons, but as game developers, we do what will work best for the game. We certainly still use 3D renders, the our newest game that'll feature this is https://store.steampowered.com/app/2232780/First_Sexy_Night_2_Second_Date/ that will come out before Christmas.
Having made a lot of games with different artstyles it feels very strange to watch the AI hate debate. Part of the reason why we're still making games with 3d renders is that it's not actually faster to use AI to generate quite a few things. It seems fast, click a button and get an image in 5 seconds, right? Or just let it run over night and get a thousand images, and that is certainly possible. But taking such image, doing iterations of img2img, inpainting, upscaling/post processing does actually take quite a bit of effort, and I'd say takes significantly longer than downloading a pose pack for Daz 3d, double clicking on a pose, adjust the camera in 10 seconds, and click Render and wait 30 seconds and get a perfect image.
There's benefits to both approaches, and just like Photoshop was hated and 3D renders were hated, it's now AI that is hated. And just like the things before, it'll just become a tool in the toolbox, like the other tools.
If anyone thinks they can just hit a button a few times and make a game with it, you really should try it and see how it goes :) It looks simple and fast, until you realize that most of the things you want (like genitals or nudes) are very difficult to generate, coherency is terrible with anything but Midjourney, and how you overall have to steer your game in a different direction based on what you can actually generate. It is absolutely possible to generate lots of images very quickly, but making a coherent set into a game is not much different than buying pose packs, Unity assets, CG Trader models that come with poses and you just hit 1 button to render, or like the other commenter said, literally taking screenshots from a game like Honey Select or whichever.
Also for what it's worth, the gameplay is built completely from scratch in the Rust programming language using https://bevyengine.org/. There's no gameplay assets, all the code is written from scratch.